Backed by strong macro fundamentals, the Finance Ministry on Monday pitched for a rating upgrade with global agency Standard & Poor’s (S&P). Currently, India has a rating of ‘BBB -’ with a stable outlook.

Chief Economic Advisor Arvind Subramanian made a presentation to the team from the rating agency, comprising Paul Gruenwald, Managing Director & Chief Economist (Asia Pacific), and Kryan Curry Director (Sovereign & International Ratings).

According to sources, during the presentation, the agency was told that inflation, the fiscal deficit, and current account deficit (CAD) are under control.

“India has strong medium-term growth potential and therefore is exceptionally placed globally and reforms are persistent, cumulative, and creating an impact. Growth in the current fiscal will be better than fiscal 2015,” the CEA said in the presentation.

Restoring macro stability

Sources also said that Subramanian talked about restoration of macro stability besides room for further monetary easing. He expressed optimism that the cumulative effect of reforms and better monsoon are reasons for growth, which should be around 8 per cent this fiscal year.

The agency asked the Indian team how the country would deal with China and other external market turbulence. It also appeared to be worried about the slowdown in exports, and the external debt situation.

However, Subramanian, according to sources, said though China’s growth was higher, India’s potential growth rate is much higher than China’s.

He also said that the government is committed to bring down the fiscal deficit to 3 per cent in next two years. At the same time, with oil prices coming down along with gold imports, the CAD is estimated to be lower than the 1.3 per cent recorded at the end of fiscal 2015. Besides, this deficit will be comfortably financed by reserves.

He also reiterated the government’s commitment not to take recourse to retrospective amendments of tax laws, which might create fresh liabilities.

The CEA said that distribution of cooking gas subsidy through the direct benefit transfer scheme has helped in saving ₹12,700 crore.

Governance reform

In a separate presentation, Financial Services Secretary Hasmukh Adhia (who has been appointed as Revenue Secretary now), highlighted three major steps in governance reforms and better accountability.

According to the sources cited earlier, the S&P team asked whether there are targets for lending to the MSME (Micro, Small and Medium Enterprises) sector and whether the government plans to set up a holding company for stressed assets.

The government responded that there was no need for a separate company as Asset Reconstruction Companies (ARCs) already existed.

It also noted that banks had enough credit for lending. Adhia also highlighted the government’s capital infusion plan in public sector banks.

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